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The Week Ahead in Gold

The
gold market hit a 6-year high in recent trade and appears poised for further
upside. The metal may be vulnerable, however, to a corrective pullback before
seeing a fresh leg higher in price. The market currently has several tailwinds
working in its favor, and the trading week could bring with it fresh news that could
propel the market beyond its recent highs.

The
ongoing U.S./China trade war is having a measurable effect on the economies of
both countries. Since talks broke down several weeks ago, there has been
little, if any, dialog between the two nations on trade. U.S. President Trump
is set to meet with Chinese Leader Xi Jinping later this week at the G20
meeting in Japan, and markets appear to be pinning their hopes on some
productive talks being had. Progress towards a long-term agreement could have
far-reaching implications for global markets and could fuel a major shift in
investor sentiment. If the two leaders are unable to find any common ground,
the ongoing dispute could pressure stocks while keeping gold and other
perceived safe haven assets on the offensive.

Current
U.S./Iran tensions are also playing a role in recent market action. Over the
weekend, the U.S. reportedly announced that it had launched cyber-attacks
against Iranian assets tied to the Revolutionary Guard. This action comes on
the heels of a reported military strike that was called off at the last minute
by President Trump. The U.S. is also set to impose major new sanctions against
Iran this week that could potentially stir the pot even further. If Iran is not
willing to come to the bargaining table, the potential for military conflict
will hang over markets and likely keep a floor under gold prices.

A
slumping dollar index may also be an area of focus this week, as the greenback
recently traded at a 3-month low. The dollar is likely feeling the effects of
an increasingly dovish Fed as markets price in a July rate cut and the strong
potential for additional cuts later this year. In addition to the Fed’s
about-face, the dollar may also be under pressure as the effects of recent tax
cuts and government spending fade.

The
gold market currently has a combination of economic and geopolitical factors
working for it that could keep the market moving substantially higher. The
increasing risk of a global recession, the potential for lower rates, a
weakening dollar and numerous geopolitical risks may keep the yellow metal
well-bid, and a run higher of another $100 per-ounce or more in the weeks ahead
seems to be an increasing possibility.

Current
market fundamentals could be considered highly bullish for gold, and the
market’s technical posture is now also pointing to further upside. The market
is now in an accelerating month-long uptrend on the daily chart, and the bulls
may look to test a solid area of resistance around $1450 in short order. A breach
above this level on closing basis could set the stage for a push towards
previous all-time highs over $1900 per-ounce in the months ahead.